Can I remortgage my home to buy a rental property?
Could you remortgage your house to purchase a buy-to-let property, or to fund the deposit for a rental home?
Fancy yourself as a landlord? At the start of 2016, savers in the UK were getting record low returns, yet house prices and rent returns looked set to soar.
According to Bank of England Statistics, the average monthly interest rate on Cash Isas was a measly 0.81% for January 2016 - the lowest rate since records began - yet in December 2015 ARLA predicted that house prices would soar by 50% and rents would be up by a quarter by 2025.
When the outlook for savers is as bleak as this, some people have questioned whether they could and should look at their mortgage and invest in property instead.
But to qualify for a buy-to-let mortgage you’d typically need a deposit of at least 25%, and of 40% or more to find the very best deals.
With average house prices in 2015 reaching £300,000 that means you might need a deposit of £75,000-£125,000 - which probably puts buy-to-let out of reach for all but the most diligent of savers.
So, could remortgaging your home be the best way to free up some cash to invest in property?
Financing your investment
The crucial thing to remember with remortgaging to pay for a buy-to-let is that you're borrowing more - and you'll pay interest on that borrowing.
If you're remortgaging to raise a deposit on buy-to-let, you may well be putting yourself in a position where essentially you're borrowing 100% of the buy-to-let property's value.
"Remortgaging is certainly one way to finance a buy-to-let," said David Hollingworth of mortgage broker London & Country.
"You're going to have to fund a decent deposit - typically you'll need at least 25% for a buy-to-let property.
"Some of that might come from cash savings, but it's a big ask to find 25%.
If it puts you in the position to be able to buy a second property outright you may well find that a remortgage deal works out cheaper than the buy-to-let options on the market
"You could even go the whole hog with enough equity and choose to remortgage and buy a buy-to-let outright."
If it puts you in the position to be able to buy a second property outright you may well find that a remortgage deal works out cheaper than the buy-to-let options on the market as residential mortgage interest rates are generally substantially lower than buy-to-let rates.
Your own home would, of course, be at risk of repossession if you couldn't meet the mortgage payments, but you would own the second property outright.
Experian Teams with Finicity to Automate Mortgages
The latest step forward in this department comes via a partnership between credit bureau Experian and real-time financial data-sharing company Finicity.
Together, we get Experian’s new “Digital Verification Solutions,” which among other things, will allow for asset and income verification. So instead of having to e-mail/fax your bank statements, paystubs, and tax returns, you can just provide access to such information with the click of a few buttons.
You simply authorize retrieval of your financial data and the company is able to gather, analyze, and send a verification report to your lender, all within minutes.
Their real-time Verification of Asset (VOA) Report gives lenders access to your checking, savings, 401(k) and brokerage accounts.
It contains important details such as average balance, minimum/maximum balance history, flags large deposits and withdrawal transactions, and verifies the account owner.
Their Verification of Income (VOI) Report provides data for up to 24 months, including average monthly income, frequency of income deposits, and income trends.
These automated reports are both more secure and less onerous for the consumer, and safer for the lender because it means less fraud and a lower chance of buybacks.
Ideally, it also means loan officers can spend more time originating mortgages, as opposed to chasing down customers for their latest bank statement, including ALL pages. And there’s no need for second requests because they have access to the data whenever they need it.
So far, their technology covers 80% of all financial institution accounts in the country, meaning you’ll probably be able to use this service whilst applying for a mortgage.
With this technology in place, Experian hopes to get the loan approval process down to as little as 10 days, maybe.
The credit bureau also hopes these new methods of verification will make it easier for those with limited or no credit history (~25% of the U.S. population) to get approved for a mortgage.
The idea is that most consumers have checking and savings account, along with payment obligations such as rent/utility/cell phone bills, which when verified (more easily) can demonstrate the ability to repay a mortgage.